Eagle Corporation operates a family business established by Edward Eagle, Sr. ten years ago. Edward Eagle, Sr. died, and the Eagle stock passed to his children. The corporation operates rental property and also invests in dividend paying stock and corporate bonds. Eagle€™s tax advisor made the following profit projection for the current year:

Eagle paid dividends of $40,000 in each of the past three years. Eagle was not a PHC in prior years.
Required:
Prepare a memorandum to Edward Eagle, Jr. regarding potential liability for the PHC tax. In your memorandum, discuss the following two questions:
a. Is Eagle likely to be deemed a PHC for the current year?
b. If Eagle is likely to be deemed a PHC for the current year, what measures (if any) should be taken before year-end to eliminate the PHC tax liability? After year-end?

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Rentals S260,000 Dividend income (from a 40%-owned domestic corporation) | 90,000 Interest income 20.000 Gross income S370,000 Rental expenses: Depreciation expense S 70,000 Interest expense 100,000 Property taxes 10,000 Other Sec. 162 expenses 20,000 General and administrative expenses Total expenses Net profit 15.000 215.000 S155,000